Investment Information and Credit Rating Agency (ICRA) warned the banking industry that it may suffer more shocks due to the pile up of its’ gross bad assets which is set to touch 4.4 %, or Rs 2.9 trillion of total assets by this fiscal end.
Gross bad assets were 4 % of total assets at the end of the July-September quarter. Net NPAs stood at 2 % or Rs 0.9 trillion in March and 2.7 per cent or in Q2 or Rs 1.25 trillion.
As per ICRA estimates, unamortized losses worth Rs. 6,000-7,000 crore would impact banks’ profitability in the second half of FY14. It also said that the banking system require Rs. 4.1-5.7 lakh crore by FY18 to meet the Basel III norms. It expects net profit of state-run banks this fiscal year to be 30-40 % lower than FY13, which will pull down their return on equity to 6-8% from 9.7% in H1.
ICRA analyzed 26 public sector banks and 15 private sector banks. These 41 banks collectively account for around 90 % of the total credit portfolio and deposits as of the September quarter this fiscal year.
- ICRA Limited , an Indian independent and professional investment information and credit rating agency credit rating agency was set up in 1991. Its headquarters are at Gurgaon.
The Reserve Bank of India (RBI) relaxed External Commercial Borrowing (ECB) norms for companies raising foreign funds for infrastructure projects. As per the relaxation given by the central bank, firms can now raise funds through the ECB route for their infrastructure projects through their holding companies or core investment firms, which will facilitate them to arrange finances for these projects expeditiously.
As per RBI, such funds should be used in Special Purpose Vehicles (SPVs) for a specific project. Currently, SPVs are permitted to raise ECB funds for infrastructure projects, while there were restrictions for parent firms in doing so.
However, the central bank has stipulated a number of conditions to avail this facility. For example, infrastructure projects are required to be executed by the SPV set up exclusively for the project. The SPV should give an undertaking that no other method of funding, such as trade credit, will be used for that portion of fresh capital expenditure funded through ECB proceeds.
What is External Commercial Borrowing (ECB)?
- Any money that has been borrowed from foreign sources for financing the commercial activities in India are called External Commercial Borrowings.
- The Government of India permits ECBs as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment
The ECBs are defined as money borrowed from foreign resources including the following:
- Commercial bank loans
- Buyers’ credit and suppliers’ credit
- Securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc.
- Credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.
Objective of External Commercial Borrowing (ECB)
- Government permits the ECBs as an additional source of financing for expanding the existing capacity as well as for fresh investments. The ECB policy of the Government seeks to emphasize the priority of investing in the infrastructure and core sectors such as Power, telecom, Railways, Roads, Urban infrastructure etc.
- There is also emphasis on the need of capital for Small and Medium scale enterprises.
How ECB is different from FDI?
It must be noted that ECB means any kind of funding other than Equity. If the foreign money is used to finance the Equity Capital, it would be termed as Foreign Direct Investment.
The ECB should satisfy the ECB regulations stipulated by the Government or its agencies such as RBI. The Bonds, Credit notes, Asset Backed Securities, Mortgage Backed Securities or anything of that nature are included in ECB.
The following are not included in the ECBs
- Any Investment made towards core capital of an organization such as equity shares, convertible preference shares or convertible debentures. We should note here that those instruments which can be converted into equity are called convertible. The convertible instruments are covered under the FDI Policy.
- Any other direct capital is not allowed in ECB.
As per Paris-based International Energy Agency (IEA), India will become the largest single source of global oil demand growth after 2020.
Key predictions of IEA published in its World Energy Outlook:
- The global oil demand is projected to touch 101 million barrels per day (mbpd) by year 2035 from today’s around 87 mbpd.
- The centre of energy demand is shifting decisively in favour of emerging economies, particularly China, India and the Middle East, which drive global energy use 33% higher.
- India’s oil consumption will exceed 8 mbpd by 2035, which is more than current consumption of Japan, Korea and Australia put together.
- Currently, within Asia, China dominates the region, before India replaces it from 2020 as the principal engine of oil demand growth.
- India’s energy demand are estimated to double by 2035 on back of economic growth and population increase.
- By 2035, India is likely to be the largest importer of coal and will be second largest importer of oil next to China and will be number four in importing gas after European Union, China and Japan.
- Although the energy demand will be two-fold, the consumption per capita in India will still be 1/4th of the OECD average.
- China is predicted to become the largest oil-importing country by replacing US and India will become the largest importer of coal by the early 2020s.
- India’s coal imports will surge primarily because India uses the fossil fuel for generation of electricity and 68% of electricity in India is generated from coal.
International Energy Agency (IEA)
The International Energy Agency was established by the Organization for Economic Cooperation and Development (OECD) as a response to the oil shock of 1973-74. IEA advises its 24 member countries on issues related to energy security.
Following its plan to achieve the Rs.40, 000 crore disinvestment target for this fiscal, the government issued Follow-on-Public Offer (FPO) of Power Grid Corporation which was fully subscribed.
The sale of 78.70 crore shares valuing $ 1.1 billion, or 17% stake, could fetch around Rs 7,083 crore at the upper end of the price band. .
With this offer, the government holding in the company will come down to 57.89% from the current level of 69.42%.
This is the second FPO from Power Grid, which sold a 10% stake along with a similar stake divested by the government in November 2010. The company hit the capital market with IPO in October 2007. So far in the current fiscal, the government has raised over Rs 1,300 crore through minority stake sale in PSUs. It has aims to fetch Rs 40,000 crore from disinvestment in the current fiscal.